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A Towering Economic To-Do List for Obama

The dismal state of the economy helped decide Tuesday’s presidential election. And it almost certainly will dominate the early days of the Obama administration.

Few presidents have entered office with an economy in such turmoil. Reflecting worries that the worst may not be over, the stock market continues to languish, with a 5 percent decline on Wednesday, leaving it 35 percent below its peak last fall.

The reasons are myriad: the financial system, though back from the brink, remains deeply troubled. Housing may no longer be in free fall, but plummeting values and rising defaults have impoverished many homeowners and burdened states with widening budget deficits. The once-mighty auto industry is on the verge of implosion.

Consumers who piled up credit card debt are pulling back, a major concern because their spending helped power economic growth in recent years. And with unemployment widely expected to increase to 8 percent or higher, from 6.1 percent, consumers are likely to tighten their belts even more.

Moreover, with upward of $1 trillion already pledged by the federal government to bail out the banking and housing industries, financing a growing deficit to address the problems could be difficult — and saddle the Treasury Department with high levels of debt for years to come.

But even before President-elect Obama takes the oath of office, Democrats are likely to push his agenda with urgency, because the economy otherwise could worsen quickly — complicating the task ahead. “The cost of allowing an economy to flounder is very high in lost output and rising unemployment,” said James Glassman, chief domestic economist at JPMorgan Chase & Company.

Here are some of the crucial issues that economists say will test the new administration, and how it might address them.

ECONOMIC STIMULUS: Obama Is Likely to Act Quickly

Quick passage of an economic stimulus package is high on Mr. Obama’s agenda, even more pressing for the moment than the tax package that he promoted repeatedly during his campaign.

Congress could act on the stimulus this month — but only if the president-elect signals that he favors a preinauguration special session, Congressional Democrats said. Legislators would more than likely adopt some relatively inexpensive measures rather than try to pass a much larger outlay that the Bush administration might oppose. After he takes office, Mr. Obama is likely to ask Congress for an additional economic lift, those in his camp say.

Before the election, the party leadership in Congress discussed a lame-duck session to take up a bill that would pump $150 billion to $200 billion into the economy. That would follow the $168 billion stimulus, most of it in rebate checks mailed to tens of millions of Americans earlier this year.

Those checks lifted spending a bit. But they came before the credit crisis struck in force in early September.

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Illustration by The New York Times

“We need a package that matches the problem as it exists today, and in my view that means at least $200 billion a year for a couple of years,” said a senior member of the House Financial Services Committee staff.

As private sector spending dries up, the case builds — among Republicans as well as Democrats — for the government to jump-start the economy.

“Right now, the economy is in a really deep recession,” said Kevin Hassett, director of economic policy studies at the American Enterprise Institute and a senior economic adviser to John McCain.

Like many Republicans, he wants the stimulus — whatever its size — to be a cut in tax rates, not an increase in public spending. The Obama camp also supports a tax cut, possibly front-loaded so that refund checks would go out before tax returns are filed in April. But that would be enacted after the inauguration.

As for immediate relief, Obama aides say, a lame-duck session of Congress could pass a $60 billion package of additional outlays for food stamps, extended unemployment benefits and subsidies to the states to minimize their spending cuts.

The big question is “should the Democrats risk a Bush veto in a lame-duck session,” said Jared Bernstein, a senior economist at the Economic Policy Institute and an Obama adviser, “or should they wait for Obama to take office in January to get a more effective recovery package.”

As a candidate, Mr. Obama said he would extend the Bush tax cuts of 2001 and 2003 for families whose income is under $250,000 a year. He pledged to add new tax breaks for homeowners who did not itemize deductions and more breaks for savings accounts, college costs and farming. He said he would change the alternative minimum tax so it did not affect the middle class.

To raise revenue, Mr. Obama said he would repeal the Bush tax cuts for people in the top two marginal tax brackets before their scheduled expiration at the end of 2010, and raise taxes on capital gains and dividends.

His tax plans are reminiscent of Clinton administration policies that increased taxes on the affluent but gave targeted breaks to others. He would also repeal corporate loopholes and retain an estate tax.

The nonpartisan Tax Policy Center estimated that the Obama plans would reduce revenues by as much as $2.9 trillion over a decade. The center said Mr. Obama’s incentives could strengthen the labor market, while giving further breaks to “an already favored group — seniors.” -- LOUIS UCHITELLE and JACKIE CALMES

Mr. Obama has pledged to help hard-pressed homeowners, but he will have to move quickly to forestall a new wave of foreclosures.

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Few analysts expect the new president and Congress to try to overhaul the health care industry any time soon.Credit
John Moore/Getty Images

Some in Congress favor direct mortgage relief, but others worry that the cost — on top of the bank bailout — will be too expensive.

Judging by positions laid out in his campaign, Mr. Obama might seek to change personal bankruptcy laws to help people avoid losing their homes, a step that the Bush administration and the mortgage industry have resisted.

Like other Democrats, Mr. Obama wants to empower bankruptcy judges to ease the terms of home loans on primary residences. Under current laws, judges are prohibited from reducing the balance on those mortgages but can change loans backed by commercial property or second homes.

The shift, proponents say, would help keep millions of people in their homes and ease the broader housing crisis. Many mortgage companies and Wall Street investors, however, might suffer greater losses on the loans and securities backed by them.

The Bush administration and many lenders have argued that changing the bankruptcy law would ultimately drive up mortgage rates, worsening the downturn in the housing market. They also argue that it would violate the sanctity of contracts and drive investors away from the mortgage market.

But with more comfortable majorities in both houses of Congress, Democrats could move quickly. Republicans in the Senate could try to block a change through a filibuster.

Mr. Obama has generally supported the $700 billion financial rescue package that Congress and the Bush administration negotiated and approved last month. He also endorsed the move by the Treasury secretary, Henry M. Paulson Jr., to redirect $250 billion of that money to recapitalizing the nation’s banks.

But Mr. Obama has not specifically said how he would spend the remainder of the money or whether his administration would acquire loans or securities as Congress initially intended. (The Treasury has made no acquisitions yet and it is unclear if it will do so before the Bush administration leaves office in January.) Mr. Obama has said that the government should help homeowners refinance troubled loans that can be saved. -- VIKAS BAJAJ

FEDERAL REGULATION: Tighter Reins on Wall Street

Mr. Obama called for reorganizing the financial regulatory system months before the housing and credit crises spiraled into a debacle. He outlined six principles, but offered few details.

He said one major priority would be to consolidate the financial regulatory system. He promised to streamline the alphabet soup of agencies, from the Federal Reserve to the Securities and Exchange Commission, that have enforcement powers.

The problems of the cash-poor Big Three automakers are too pressing to wait for the new administration to take over.Credit
David Zalubowski/Associated Press

Mr. Obama promised he would increase penalties for market manipulation and predatory lending, and create a new financial-market oversight commission to review conditions regularly and advise the president and Congress about potential risks.

In one of his campaign-ending speeches on Monday, Mr. Obama said, “The last thing we can afford is four more years where no one in Washington is watching anyone on Wall Street because politicians and lobbyists killed common-sense regulations.”

He returned to that theme on Tuesday night after he clinched the election, signaling that the financial industry should brace itself for a regulatory crackdown. Some Democratic lawmakers already have held hearings on what a new financial regulatory landscape would look like. -- JACKIE CALMES

AUTO INDUSTRY: In Detroit, No Cash, No Credit, No Time

General Motors, Ford Motor and Chrysler are rapidly running out of cash in the worst sales market for new vehicles in 15 years. Both G.M. and Ford are expected to announce billions of dollars more in losses for the third quarter on Friday, and the threat of bankruptcy will grow without some form of federal assistance.

The Bush administration has so far denied G.M., Ford and Chrysler any aid from the $700 billion financial rescue fund or any other new source of assistance. It will, however, pay out the $25 billion in low-interest loans for cleaner cars sooner than had been promised.

The pleas for help from the Big Three are growing louder. “This is really a severe, severe recession for the U.S. auto industry and something we cannot sustain,” said Michael DiGiovanni, G.M.’s chief market analyst.

Mr. Obama has promised to meet soon with the chief executives of the Big Three to discuss adding another $25 billion in aid to the loan program for more fuel-efficient vehicles.

Democratic leaders in Congress are also considering ways to inject new cash into Detroit as quickly as possible. Michigan’s ranking Democrats, Senators Carl Levin and Representative John D. Dingell, will be instrumental in crafting any proposed legislation.

The aid could come in the form of government-backed, low-interest loans, similar to the bailout package for Chrysler in 1979. In addition, the Congress and Mr. Obama could tap the $700 billion financial assistance fund to buy up bad car loans and help automotive lenders get credit flowing to consumers again.

One potential hurdle for aid, however, is the proposed merger of G.M. and Chrysler, which is majority-owned by the private equity firm Cerberus Capital Management. The deal, if completed, would cost thousands of jobs and has so far found little support in Washington. -- BILL VLASIC

HEALTH CARE: An Overhaul Will Have to Wait

Democrats’ campaign rhetoric aside, few health care analysts expect the new president and Congress to undertake a sweeping overhaul of the health care industry any time soon.

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President-elect Obama has encouraged the development of low-carbon forms of energy, like wind, solar and nuclear power.Credit
Mike Groll/Associated Press

The more pressing needs of a faltering economy make it unlikely that big changes in health care can quickly make their way to the top of the new agenda. But analysts say the newly empowered Democrats are likely to abandon some of the health care positions staked out by the Bush administration, particularly when it comes to Medicare.

Private insurers’ role in Medicare “is target No. 1 for Democrats,” said Robert Laszewski, the president of Health Policy and Strategy Associates, a consulting firm in Alexandria, Va.

Under the privatization approach of the Bush White House, commercial insurers now provide coverage to about a quarter of the nation’s 44 million Medicare enrollees — at a cost to the Medicare program of about 15 percent more than when the government provides the benefits directly. With the threat of a Bush veto removed, Congress will now be looking to shrink or end those industry subsidies to save Medicare money, Mr. Laszewski said.

The president-elect and the Democratic Congress also are likely to give Medicare the power to directly negotiate with pharmaceutical companies — a change that the Bush administration has resisted — though the impact on prices would depend on the authority Congress grants.

Analysts also expect the Democrats to seek closer scrutiny of the drug industry through the Food and Drug Administration, an agency that has been stretched thin in recent years.

And many analysts expect Congress to take some steps to address the increasing cost of medical care. High on the list might be covering more children under the federally subsidized State Children’s Health Insurance Program. Congress might also try some relatively inexpensive other changes, like pushing harder for the adoption of electronic health records or requiring hospitals and doctors to report publicly both the cost and the outcomes of their care, to enable patients to comparison-shop. -- REED ABELSON

TECHNOLOGY: To Shape Policy, a Cabinet Voice

Technology companies have long argued that they need the best and brightest engineers if they are going to compete in the global economy. President-elect Obama has endorsed the industry’s call for raising the number of H-1B temporary work visas, which are available now to only 65,000 skilled foreign engineers each year. (The visas are all claimed within minutes.)

But even with a sympathetic ear in the White House, getting Congress to agree to more visas could present a major challenge given the probability that, in a recession, public sentiment will be heightened that foreigners are taking Americans’ jobs.

In the meantime, the tech industry — which has grown much more politically active in recent years — will greet the new president with a list of other wishes. One is that he push policies to spread high-speed Internet access, which provides a conduit for e-commerce, online advertising and other Web-centric business models. The industry argues that the United States has fallen to 16th in the world in terms of broadband penetration, frustrating consumers with a lack of services — like the high-speed downloading of movies — and the still-choppy performance of their Internet connections.

The industry also hopes Mr. Obama will stand behind his stated support of “net neutrality,” which is a government requirement that telecommunications companies provide Internet content providers equal access to delivery lines.

Such tech policy could fall to a chief technology officer, a cabinet position the president-elect has pledged to create. -- MATT RICHTEL

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As he indicated during the campaign, Mr. Obama might seek to change personal bankruptcy laws to help people avoid losing their homes.Credit
John Lok/The Seattle Times, via Associated Press

ENERGY: An Agenda Faces Possible Delays

An Obama presidency could mean a sharp shift in the nation’s energy policies, with particular emphasis on conservation and renewable power. But some of the candidate’s bolder proposals, like a global warming bill, may have to wait for the economy to recover, according to analysts and energy experts.

High energy costs and concerns about global warming have heightened the sense of urgency for a broad policy that tackles both the nation’s oil use and its energy-related carbon emissions. As a candidate, Mr. Obama shifted from his initial opposition to expanding offshore drilling, but his core message remained that the United States should reduce its oil consumption, encourage energy conservation and efficiency, and develop low-carbon forms of energy.

“There is an opportunity to address energy needs in a way that hasn’t been possible for decades,” said Daniel Yergin, the chairman of Cambridge Energy Research Associates. “It almost feels like we’re picking up from where we were in the 1970s.”

But, he added, “resources are going to be constrained, and spending on energy will have to compete for dollars with spending on the financial crisis and two wars.”

The Obama energy plan called for investing $150 billion in clean energy technologies over the next 10 years, creating green jobs and ensuring that a growing share of the country’s electricity came from renewable sources. He also proposed an aggressive mandate over the next four decades to cut greenhouse gas emissions, which cause global warming.

Given the size of the Democratic majority, an Obama administration is also likely to impose stricter environmental regulations and place higher taxes on oil companies than the Bush administration did. -- JAD MOUAWAD

What consensus there was on international trade seemed to evaporate with the failure of world trade talks this summer. Indeed, with the world on the brink of a global recession, led by the United States and Europe, the fear of a rise in protectionism grows.

The first test of sustaining international cooperation will come on Nov. 14 and 15, long before Mr. Obama takes office. Leaders from 20 major countries will gather in Washington with President Bush to embark on an effort to rewrite international financial regulations — an undertaking some liken to a latter-day Bretton Woods conference.

Whether or not he attends, Mr. Obama will cast a long shadow.

In short order, the recession and a likely spike in unemployment are sure to put him under pressure from union supporters, as well as Congressional Democrats, to take a tougher line on trade.

“China is the issue that should be part of Obama’s trade policy right away,” said Thea M. Lee, the chief economist of the A.F.L.-C.I.O. “Part of it is sending a strong message to the Chinese government that the U.S. is not willing to tolerate currency manipulation and violation of workers’ rights.”

But China’s economy is slowing, making its leaders even less receptive to demands to allow their currency to rise. The United States will also need the Chinese to buy a good chunk of the debt being run up by the bailout of banks and housing.

It is also unclear whether Mr. Obama will pursue a renegotiation of the North American Free Trade Agreement, which he discussed in the hard-fought primaries.

“He parsed his answers in a way that suggests he understands the importance of global trade,” said Hank Cox, a spokesman for the National Association of Manufacturers. -- MARK LANDLER